As parts of Australia shiver through a proper winter’s morning (what better excuse do we need to book a flight to a toasty Greek Island), it appears the markets have also chilled out a little bit following last week’s volatile trading. The Australian dollar has kept the GBP and USD under constant pressure, rising slightly overnight to continue last week’s resilient run and chip away ever so slightly at some of this year’s losses. Considering the near certainty of a .25 basis point reduction in interest rates by the RBA today and recent data pointing to softer than expected GDP figures, slight gains against the pound and greenback suggest it may have found a support base to work with moving forward.
At the moment, 1 Aussie dollar will buy you:
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If you’ve ever heard the saying buy the rumour, sell the fact, market analysts are predicting you’re about to see it in action with the Aussie dollar. If the RBA does indeed drop interest rates by .25 basis points today, many are expecting the AUD to push slightly higher against the USD and GDP in the coming days as investors look to capitalise on the AUD’s recent losses. It’s not often the RBA will telegraph their intentions prior to a meeting, but over the last couple of months, they have signalled an upcoming cut rather openly. This has given the markets ample time to fully price in at least one rate drop into the AUD value.
Rate drops historically don’t result in currency gains, but this time could be an outlier. Watch this space very closely. If the RBA are optimistic in their outlook for the economy despite a drop in rates, we can probably expect the AUD to move positively against the pound and USD. However, if their outlook for the economy is more bearish, further losses wouldn’t be surprising to see.
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With all the talk of an upcoming rate cut, what exactly does that look like for Aussie homeowners? Well, Treasurer Josh Frydenberg has put the banks on notice to pass on the full rate cut to consumers to ensure the full effects are felt. If you have a home loan of $400,000, a .25 basis point cut would save you about $58 on your monthly repayments if the banks fully passed it on.
Another upcoming announcement to watch is Wednesday’s GDP figures; many economists are expecting softer growth around the 0.4% - 0.6% mark. Higher than expected GDP figures and household spending data could also see the AUD move slightly higher.
The AUD has continued its strong performance against the GBP overnight, gaining steady ground despite the looming RBA rates decision domestically. A number of factors are pushing the Aussie dollar higher against the pound, with Brexit hanging around like a bad smell and weaker than expected manufacturing results in the UK softening investor’s appetites for the GBP. In the UK, factory growth contracted in May for the first time since July 2016, as overseas companies alter their supply chains, taking manufacturing abroad in an effort to avoid any negative Brexit effects.
Thankfully it’s been a little bit quieter this week on the Brexit front than the last couple of weeks. Although it’s not that nothing is happening, it looks like progress has simply stalled in a number of key areas since Theresa May announced she would be stepping down as PM this month. We’re no closer to finding out who will be her replacement and the prospect of a no-deal Brexit is still a possibility, albeit slightly lower according to market analysts.
May was a pretty rough month for US stock markets; Nasdaq fell 8.7%, the S&P -6.6%, the DOW dropped 6.4% and was led by a 17% loss by tech behemoth, Apple. So it took pretty much everyone by surprise when Donald Trump announced a brand new set of tariffs, this time on Mexico. Trump announced a 5% tariff on all Mexican imports from June 10, skyrocketing to 25% by October 1st, “until such time as illegal migrants coming through Mexico, and into our Country, STOP”, in the President’s own words. If the tariffs were to take effect, they could eventually raise prices for a burrito at Chipotle, a new t-shirt and heaven forbid, even a Corona beer.
The unpredictability of Trump and his administration is a major fear for global markets. The new tariffs threaten to undermine a positive economic relationship with Mexico that has been improving for decades and casts doubt on agricultural supply chains that have operated without tariffs since the 1994 North American Free Trade Agreement came into effect. Mexico was actually on track to become the United States’ largest trading partner, tipped to surge ahead of China and these new tariffs certainly cast doubt on that.
As a result of the Trade War with China and the added instability of a two-front Trade War extending to Mexico, the USD is trading weaker across the board as the market also comes to terms with the growing likelihood of a Federal Reserve rate cut this year to combat the negative effects of the ongoing trade disruptions. The AUD/USD has also been buoyed by US manufacturing data released yesterday that shows the US factory sector has grown at its weakest rate since the global recession nearly 10 years ago
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